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ConAgra Foods, Inc. (CAG), Kraft Foods Group Inc (KRFT): Which of These Food Companies Is Going Strong?

Like ConAgra, Kraft Foods is also facing margin pressure. Analysts expect that the company will improve its margin by 300 basis points by enhancing its supply-chain management and reducing costs. Cost reduction should be achieved by reducing overhead and by extending the U.S. grocery division’s sales. Further, to reduce expenses, management centers in the U.S. will also be consolidated, which should result in lowering general and administration expenses.

Kraft Foods Group Inc (NASDAQ:KRFT) reported a healthy financial performance in the first quarter of 2013 with revenue of $4.55 billion, 2% higher than last year. The company’s stock price has surged almost 16% year to date and it has some recognized brands such as Capri Sun, Jello, Maxwell House, Planters, and Oscar Meyer that assure stable growth of 2% to 3% in the future. A 3.7% dividend yield is another incentive.

Mondelez International Inc (NASDAQ:MDLZ), after spinning off from Kraft Foods Group Inc (NASDAQ:KRFT), is poised to grow in global snacking. Similar to Kraft, Mondelez has diversified and recognized brands, such as Cadbury, Milka chocolate, Oreo biscuits, Trident gum, and Jacobs Coffee and is a leader in chocolates, gums, and biscuits.

Mondelez is a more diversified company geographically and also on the basis of the products it offers compared to Kraft Foods. The company expects to grow its revenue 5%-7%, which is easily achievable if it continues to maintain its current leading market share in chocolates and biscuits, and keeps its focus on emerging markets. Mondelez share prices fell after its spinoff from its parent company, but I see that as an investing opportunity, keeping in mind what the company has to offer to investors.

Currently, ConAgra Foods, Inc. (NYSE:CAG) is trading 19 times its earnings and Kraft Foods Group Inc (NASDAQ:KRFT) is trading at a P/E ratio of 21 times, a premium that it well deserves for a stable performance over time. ConAgra is comparatively cheaper than Kraft, but it has a high debt burden that weakens its financial stability. Moreover, ConAgra has a forward P/E ratio of 13 compared to Kraft’s forward P/E of 19, signifying more growth opportunity for ConAgra moving forward.

Final words

It would take at least a year for Ralcorp to start delivering the cost synergies that ConAgra Foods, Inc. (NYSE:CAG) expects from it. Further, the margins will be low in the current year and should start improving next year. I believe the company has strengthened its position among investors by delivering exquisite earnings, but a lot of uncertainty still surrounds it. I recommend a hold for ConAgra at the moment.

The article Which of These Food Companies Is Going Strong? originally appeared on Fool.com and is written by tarun bachhawat.

tarun bachhawat has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. tarun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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